Damages and Account of Profits

Associate Professor Peter Devonshire
Faculty of Law
University of Auckland

Tim Mullins
LeeSalmonLong
Auckland

Published: 14 October, 2008
Pages: 56

Introduction

In this Seminar, we aim to discuss some developments of practical significance in the area of money remedies. In particular, we will be looking at the equitable remedies of compensation/damages and account of profits, contrasting them with common law damages, and considering the circumstances in which they are available.

A plaintiff has to prove some sort of liability to obtain a remedy, so the type of liability tends to be an initial focus in many cases. Thus remedies are often a secondary consideration, sometimes relegated to being an adjunct to the analysis of liability. In turn, the law of remedies is somewhat fragmented into compartments relating to contract, negligence, breach of trust and other categories of liability. It is unsurprising that the principal treatise on the law of “damages” alone, McGregor on Damages, runs to around 1,700 pages.

Some argue that remedies should be treated as a discrete aspect of civil proceedings and that remedial responses should not be tethered to the historical origins of the cause of action. The availability of equitable damages and account of profits in widening circumstances and the principles justifying those steps demonstrate some of that movement towards remedial flexibility.

The main topics we cover in this Seminar are outlined as follows:

The discussion commences with the fiduciary principle, upon which obligations that traditionally give rise to equitable remedies are founded. The circumstances where someone can owe fiduciary obligations have expanded over recent years well beyond the historical province of trustee and beneficiary or lawyer and client, to a variety of factual circumstances unconstrained by strict categories. Of note are the recent holdings in the Supreme Court on when fiduciary obligations can arise between parties otherwise engaged in arms-length commercial dealings.

Having considered the circumstances in which fiduciary obligations may arise, we consider the jurisdiction to award damages (and exemplary damages) or compensation for breach of those obligations, where in the historical context, the primary remedies had been focused on ensuring that fiduciaries did not obtain unauthorized gains from their position. Arising from the stricter standard to which a trustee has traditionally been held, the necessary causation element for loss differs to that at common law. However, the growing recognition that the substance of a duty, rather than its historical provenance, should set the boundaries of liability introduces some important qualifications. A prominent, if somewhat controversial, head of “damages” to emerge from the exercise of the court’s jurisdiction to award equitable damages, is so-called “Wrotham Park” damages. These awards “compensate” a plaintiff for incursions of their rights that do not necessarily cause them loss, by a measure representing what the defendant should have paid for a relaxation of the rights.

We turn then to the remedy of account of profits. The underpinning and limits to the remedy are considered in the context of commercial relationships especially. In addition to fiduciary duties, the scope for account of profits to be awarded in cases of: breach of confidence, intellectual property infringement, torts affecting property, and (as recently recognised) breach of contract is considered. We also look at the important limitations to the remedy arising from the need to account for the contributions of the defendant by way of reimbursing expenses, a defendant’s labour and skill, and the possibility that some profit might be apportioned to the defendant.

Finally, interest has long been awarded on damages claims pursuant to a statutory power, but how often has such an interest award been inadequate or inappropriate to compensate a plaintiff kept out of money for some time? Given its commercial significance, and the arguments made by law reform commissions, it is perhaps surprising that the statutory position permitting simple interest, with a regulated maximum percentage, has remained unreformed. Equity has always had a greater flexibility in the award of interest, but it too has been coy about the award of compound interest. The recent House of Lords decision in Sempra Metals has put the award of compound interest, as a head of damages, on a sound footing, removing the anomalous position that under contract, special facts in the contemplation of the parties had to be established as a pre-condition for recovery. The historical context, the judgment in Sempra, and its practical implications in framing remedies are discussed.

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